The Future for XM, With or Without a Sirius Merger

Saturday Interview (NY Times)
The Future for XM, With or Without a Sirius Merger
David Burroughs

By ERIC A. TAUB
Published: September 15, 2007

SIRIUS SATELLITE RADIO and XM Satellite Radio, the only satellite radio networks authorized to operate by the Federal Communications Commission, expect to learn by the end of this year whether their request to merge will be successful.

The move has been opposed by the National Association of Broadcasters, the group representing traditional television and radio companies, and by some consumer groups as anticompetitive and counter to agreements the companies made when the government approved their requests for operating licenses.

Nate Davis, XM’s president and interim chief executive, and Gary Parsons, the company’s chairman, recently discussed the merger and the future of the company if the merger petition is not successful.

Q. It is said that the darkest part of the night is just before the dawn. Do you ever wake up fearing that this merger will not happen?

PARSONS No, I actually don’t. We have said that we do not need the merger to go forward. Candidly, it’s pedal to the metal from the beginning to the very end. The most extraordinary thing has been the visceral nature with which the N.A.B. jihad has progressed against the merger.

Q. What do you attribute that to?

PARSONS To the fact that they recognize we’re a very effective and difficult competitor and on a combined basis we’d be even a stronger competitor. And it makes perfect sense they would oppose it strongly. The only part that doesn’t make sense is that they would oppose it that strongly while maintaining that we aren’t competitors.

Q. Some of your opponents argue that if satellite radio is having financial difficulties, that is your problem. You should not ask the government to reverse its original position against a merger.

PARSONS If I were a competitor and two parties were coming together to become a strong competitor, I would not want that to occur. And if they were having difficulties, I would want them to continue having difficulties. So I think their motivations are fairly transparent.

Q. Should the gloves be taken off with regard to restrictions on traditional, commercial radio?

PARSONS If I got to that point where I believed the merger was going forward and I were a competitor, then that’s the new position I would adopt. However, you really are almost dealing with apples and oranges relative to who has economic power and the concentration of the market. Obviously, terrestrial radio has 97 percent of the audience, and historically regulators don’t look at that in the same way. We do believe that, yes, they also have to compete, with iPods, satellite radio, Internet radio, streaming cellphones. That’s something they had concurred with prior to the announcement of our merger.

Q. If the merger is not approved, that will be a big problem for you.

PARSONS Prior to the merger, we were clearly on a continuing growth path and a path that would turn us cash flow positive and earnings positive in the out years. That is still expected to be the case. But combined, you will turn cash flow positive and positive earnings much more rapidly.

DAVIS As a company, we do face competition but we also have a product that’s growing significantly. As a category, we’re up to 14 million subscribers. Yes, there are 100 million iPods out there, but satellite radio was one of the fastest-growing products ever introduced. We think our growth, especially in the automotive industry, is really going to pick up.

Q. Some consumers may imagine that if the merger goes through, they are suddenly going to get double the number of channels. Is that correct?

PARSONS Subscribers with current radios will continue to get all of what they get from either XM or Sirius, and they will also get 10 to 12 of the most important best-quality content from the other service. But they will not suddenly have their existing radio get 300 rather than 100 channels.

DAVIS What you will get is more choice: you will get packages that will allow you to buy all sports or mostly music. You will be able to pick the channels you want, all at various prices. That’s not something we can do if we do not merge.

PARSONS We have a pool of bandwidth that we allocate depending on what game is playing. That works great because when hockey is in full swing we are not carrying baseball.

Q. Do you need to adapt your strategy going forward?

DAVIS We cannot continue on with business as usual. Our method of competing four years ago is different than it was two years ago and different than it will be in 2008, and I’m saying that assuming there is no merger.

We are pushing our Internet capabilities, and we are also partnered with cellphone companies to sell streamed XM music. We will be available on portable wearable devices and navigation devices, so our focus is on having a wide variety of ways to get content.

Q. One year from now, if the merger does not go through, what will you do going forward?

DAVIS If the merger does not happen, we will be very focused on making sure we continue to move to generate cash from operations in the near term and being earnings positive. We have to compete in all markets so we will continue to make our content better and better.

http://www.nytimes.com/2007/09/15/bu...CXuxOXJXje96NQ